Gas giants agree to rein in exports as supply crunch looms
In a major reversal of oil and gas giants' long-running opposition to calls for an east-coast gas reserve, global energy major Shell has become the second major gas company to say it is prepared to support new domestic supply commitments, including rules that would compel liquefied natural gas (LNG) exporters to set aside a specified amount of their gas production that cannot be sold overseas and must be delivered only to local buyers.
The move comes amid intensifying concerns from Australian governments, regulators and gas users that too much LNG is being shipped offshore from Queensland, exacerbating a supply crunch and driving up prices in Victoria, New South Wales and South Australia as the decades-old gas fields in Bass Strait continue to rapidly deplete.
Australia has become one of the biggest global suppliers of LNG, a commodity that rakes in tens of billions of dollars of revenue a year. While Western Australia has its own gas reservation policy, requiring the LNG industry to hold back 15 per cent of their reserves, there were never such rules imposed on Queensland exporters when their terminals were launched a decade ago.
Shell, which produces super-chilled LNG at its QCLNG joint venture near Gladstone, has told the federal government it would now back new commitments or reservation rules, as long as they applied equitably across the industry and were accompanied by a set of regulatory changes to remove barriers to drilling and developing new sources of gas supply.
'Reservation can only be part of a broader framework,' Shell Australia chair Cecile Wake said. 'Without active measures to increase the supply of gas, solely focusing on carving up an ever-diminishing supply will only curb investment and exacerbate the very problem it is trying to resolve.'
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Last week, another Queensland exporter, Australia Pacific LNG (APLNG), also said it believed an export licensing and permitting regime that guaranteed supply for the domestic market was the best way to tackle concerns around supply shortfalls and rising prices. APLNG, whose backers include Origin Energy, US giant ConocoPhillips and China's Sinopec, stressed domestic contributions must be spread equitably among exporters.
'An export licensing and permitting regime … could address projected gas supply shortfalls in coming years while providing the investment certainty for the east-coast LNG producers and all market participants to develop new supply,' APLNG said.
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